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U.S. Challenges Put Squeeze On Mazda's Profits

TOKYO — Falling U.S. sales and the cost of hefty incentives to move slow-selling sedans sent Mazda Motor Corp.'s North American operating profit tumbling for the most recent quarter.

But the impact of that tough market was more than offset by huge foreign exchange rate gains.

Mazda's profits more than doubled for the quarter as the Japanese yen weakened against the dollar, euro and other currencies, giving the automaker a ¥15.6 billion ($138.5 million) windfall.

North American regional operating profit, reflecting business at Mazda's U.S. sales arm and Mexican manufacturing unit, plunged 75 percent to $25.7 million in the three months ended Dec. 31.

North American sales declined 3.6 percent to 102,306 vehicles in the period.

North America is Mazda's biggest market with about a quarter of its global sales, but it was the only major region where operating profit and retail sales both declined in the quarter.

"We are taking it with sort of a sense of urgency," Managing Executive Officer Tetsuya Fujimoto said while reporting the results last week. "Our No. 1 priority is to firmly tap the U.S. market and generate profits."

Mazda said much of the sales decline came from restricting fleet sales. Dialing back fleet business is part of Mazda's long-term plan to boost brand value and profitability.

But Mazda also has been racing to tilt its car-heavy lineup more toward hot-selling and more profitable crossovers. To move cars such as the Mazda3 and Mazda6 sedans, it has been piling on costly incentives that hurt the bottom line. Average incentive spending per vehicle surged 31 percent in 2017 at Mazda, according to industry data from Motor Intelligence Corp.

But trucks accounted for only 58.6 percent of Mazda's volume last year. For the U.S. as a whole, light trucks accounted for 64.5 percent of total demand.

Globally, Mazda has been expanding its crossover penetration. In the previous fiscal year, crossovers accounted for 39 percent of its global sales, up from just 12 percent in 2012.

In Japan, Mazda introduced the CX-8 crossover, a stretch version of the CX-5, to further tap growing demand in the segment. Mazda also increased production of the new-generation CX-5 crossover at its Hofu assembly plant in western Japan to boost shipments to the United States.

Mazda also said that its restructuring of the U.S. dealer network is almost complete. The shuffle replaced some dealers, while trimming the total by 23 to 586.

"Looking ahead, we will ramp up investment in these remaining stores, do more activities to encourage their training and reinvestment, so that we can put them back on the growth track," Managing Executive Officer Yasuhiro Aoyama said of the retail strategy.

Despite Mazda's challenges in North America, the foreign exchange rate gain combined with cost cutting to improve parent-company earnings in the fiscal third quarter.

Worldwide operating profit more than doubled to $271.6 million, the company said in its Feb. 7 earnings report. Net income advanced 10 percent to $191.7 million for the three-month period.